Impact of BP (NYSE:BP) Assets Sales on the Company

A number of clueless media outlets, mostly mainstream, have castigated BP (NYSE:BP) once again when they recently stated they would struggle to pay their liabilities if they were cut off from new drilling permits and projects in the Gulf of Mexico. The implication was they were blackmailing the country.

This is a completed ignorant assertion and can't even be taken seriously by anyone who understands business.

We have to go back to the promise by the Obama administration that a healthy BP is in the best interests of the country, as they not only provide thousands of jobs, but really would struggle to survive and pay out claims, lawsuits and other liabilities if there aren't new sources of business for them.

For example, they said when their target was at $30 billion to deal with Gulf damages, it would cut their production by 8 percent. That's 8 percent less revenue they would get after the sales were completed.

Now they said over the weekend they're raising their assets sales target to $40 billion, which will raise the loss of production numbers up to about $11 billion, depending on the particular assets sold.

Most people don't understand that every time they sell an asset they lose revenue and profits. All of that goes to unproductive, but necessary, pay outs for damages. The problem is there's a point of no return if they get too weak, and at that time even if they continue to have the will to pay, they won't be able to do it if costs raise to extremely high levels with much less earnings to pay for them.